Opinion: Opening up the benefits of renewable energy means considering much more than just the size of subsidies

At present for somebody to benefit from the subsidies offered to small scale renewable energy production they must have three things:

1 – Ownership of a property suitable for producing renewable energy

2 – A substantial amount of capital to invest in installing the technology and

3 – The opportunity to invest this capital for 25 years, with no possibility of early pay back unless they sell their house, in which case it is an open question what return they might receive.

Unsurprisingly this leave most people unable to access these benefits, even though many may have something to contribute to renewable energy production, including almost everyone in fuel poverty. It also reinforces an urban / rural divide between those most able to invest, and often most committed to tackling climate change, but who often live in urban or suburban communities with little potential for energy production, and the many rural residents, who are more likely to suffer from fuel poverty, despite often having greater potential to create their own electricity.

However, whilst only a few people can benefit from Feed-in tariffs, they are being paid for by everyone. The scheme is funded by a general levy on the electricity industry, which they are passing on to consumers. This will hit those in fuel poverty far more than those who are using the most electricity, both because they can less afford a rise in prices, and because of the unequal ways electricity companies charge us for electricity.

This situation is clearly unjust. However, it is also inefficient. If we want to encourage investment in renewable energy production we have to allow as many people to benefit as possible. If we want to increase the size of investments we also have to make sure that the burden of paying for Feed-in Tariffs will fall on those most able to afford it. The current situation achieves neither of these ends, and  cutting or raising the size of Feed-in Tariffs will not solve this problem. If the government is serious about making the benefits of renewable energy generation as widely available as possible they must start to consider the distribution of costs and benefits, not just their size.

One possible solution is to move the emphasis of Feed-in Tariffs, from individual investment, to community investment. Opening up the benefits of Feed-in Tariffs to people who invest in projects in their local community, and not just on their own property, would help both those without enough capital to invest in an entire project themselves, and those who wish to invest but don’t own property that will allow them to do so. The Danish model, which works along similar lines, has so far led to community energy projects that provide around 15% of the country’s electricity needs, and, even more importantly, has encouraged hundreds of thousands of families to invest.

Another possible solution is to allow for the creation of social renewable energy production along similar models to social housing. Intermediate ownership schemes could help both energy companies meet their obligations to produce green electricity and spread the benefits more widely. On such a model an electricity company or other large investor could pay to install renewable energy generators on an individual’s property. The individual would then pay off the cost of the project over several years, and would gain proportionally more of the Feed-in Tariff the more they pay off. The money they pay could then go into funding new projects, creating a positive spiral.

Finally it is necessary to take another look at how the Feed-in Tariff is paid for. A straight levy on energy companies may be simplest, but it is not the only way. A social charge on excessive energy use (above a certain number of kilowatt hours per person) and / or an increase in commercial rates on premises that fail to meet minimum standards for energy efficiency would both allow the costs to be spread more equally across society, and hence for more money to be raised without harming the worst-off, and encourage more efficient use of electricity.

* Simon Beard is Academic Programmes Manager at the Centre for the Study of Existential Risk and a two time PPC for Dartford. He lives in Cambridgeshire.

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  • I like your ideas on Community projects and intermediate schemes.

    However , I think the straight levy on Energy companies should stay. What needs to change ( with or without FITS) is the tariff structure of the energy companies.
    Instead of charging a premium on the first chunk of units used – to cover standing charges – Then slightly cheaper.
    This penalises the small users, who can least afford it.
    The structure should be the other way around, penalising larger users. Rewarding efficiency.

    Bulk supply and industrial customers – well thats another debate.

  • Elizabeth Patterson 3rd Mar '12 - 10:00am

    I agree it is the “haves” that can benefit from the present arrangements.
    But I am looking forward to the “Green Deal” that Chris Huhne steered through parliament, and which is operational from October of this year.
    My understanding of the upcoming deal is that no upfront payment is required; repayment is through the energy saving or the microgeneration achieved.
    And the contract is part of the house ownership. So for elderly people the payback period is not relevant.
    Correct me if I am wrong on this.

  • Simon Beard 4th Mar '12 - 6:26pm

    Thanks for the comments, just a couple of points in response

    * Simonsez, yes if we could get the energy companies to charge their customers in a fair way then a straight levy would be great. What you say would be one way of getting them to do this, but from past behaviour I wouldn’t expect much success. The best any company has to offer from a fairness perspective is a single rate for all energy use, some sort of progressive tariff is almost certainly out of the question, the companies want big energy use customers because they are far more profitable so of course they are going to want to offer them sweeteners, and certainly not punish them for their behaviour with higher rates. Only an external intervention could achieve change here I think, though I wish this weren’t the case.

    * Elizabeth, if the green deal worked as you say that would go a long way to making things better, but as I understand it it is only for energy efficiency (not that that isn’t very important). Also it doesn’t allow individuals to ‘invest’ per se, it just re works the costs of improving energy efficiency so that people are more likely to do what they should be doing already.

    * Liberal Eye, as you say those companies only work for Solar, and they are making profit for shareholders mostly. I don ‘t think they offer customers a good deal. People should be working in partnership, not being exploited by companies who can see a way of making pretty easy money. Anyway, we certainly can’t make money on solar alone and ordinary people need to be able to invest in the more reliable sources of energy production, and the ones that work across the UK, wind, tidal, hydro and biomass , there are also the types of schemes that communities are most opposed to, and therefore the ones in which encouraging local investment could make the biggest difference.

    * Matt F, sorry I don’t really buy your narrative. Yes some Social Housing landlords were looking to invest, but not that many, and I think the cut in feed in tariffs has largely been an excuse for them, not a reason to pull out. The cut in feed in tariffs was met almost simultaneously with a cut in the cost of equipment (funny that) and the overall calculus of investment now is almost identical to what it was when FiTs were introduced two years ago. Yes you get half as much per kilowatt, but the kilowatts can be produced at around half the cost. I agree transparency is all important though, and the more we can get profit making businesses replaced by local community investment the easier it will be to get more transparent decision making processes.

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